I am going to introduce the common local saving method and reveal the ups and down of this said system.

I hope you can share this to your circle of friends (especially if you are currently a member of paluwagan). You can easily share on Facebook. Soon this post will also be on my Youtube channel under SavingsPinay 🙂

FYI. In 2014 I received my sweldo from the paluwagan I joined together with some of my closest workmates. I believe so I am the 6th to be paid. It was the last time I joined Paluwagan. So you see, this post about Paluwagan is something personal because I am a very proud laking-paluwagan.

ANU BA YANG PALUWAGAN NA YAN (Some Facts About Paluwagan)

Paluwagan is a common Filipino financial term. The idea revolves around a group of people paying the same amount of money on either a daily/weekly/monthly basis wherein each member is being paid (mostly the total amount of money collected on the given pay in) on the desired date and time by the group. I know this sound very confusing. I actually find it really hard to explain but the key is, paluwagan is something that has been passed on by generations to generations. It is like pool saving (if there’s a term like that) wherein you save together with a group and reap what you saved on a date and time set.

Most commonly present in a paluwagan are the members and appointed collector. The appointed collector will be the one who collects the pay ins of the members and will also be responsible for the money collected and the assurance that it will be given to the scheduled pay out member on time.

Bakit Paluwagan (Reason Why We Join Paluwagan)

Most people join paluwagan for the following reasons:

Accountability Partners. When you join paluwagan you are expected to pay on time so that the person who will then receive his/her payments will have it on time. This create an accountability that you commit to and that will motivate you more to continue saving.

Need Instant Money. Paluwagan cannot be considered as a good investment more so as an investment at all. It just gives you an opportunity to earn the amount you needed in a shorter period of time. For example, if you needed to raise 5000 pesos before September ends, joining paluwagan can be fruitful because you can request for your sweldo date to be end of August.

Saving for Something Not Urgent but Important. Since the payment in a paluwagan depends primarily on the number of group members and the date desired, joining paluwagan can be agreeable. You can spare from suing your hard earned money to but that very thing you want and condition yourself that once your paluwagan payment arrived that’s the only time you will buy it.

No Particular Reason at all. Others join without any reason at all but just to save. They may even have no idea that where to put their money afterwards.

Masama Magpaluwagan? (Is joining Paluwagan Bad?)

Not at all. In my own opinion, paluwagan is like an internal financial solution. It is mostly done by a group of friends, workmates and even family members (when I was young my sister and I used to do paluwagan and it formed a bonding for us). The most important thing is that you know the persons you are dealing with. You will never join a paluwagan if you have know that the members have bad records. Also just to clear it out, paluwagan is just the same as saving. There’s no interest earned, no scam, no anything fraud and highly technical. It is an easy saving technique that requires you to be with a group, the bigger the number of members the better.

The Downfall of Joining Paluwagan

Though it may an established and culture driven system, there are still risks involved in the idea of paluwagan.

Remember you are entering a domino effect. When one exits the group in the middle of the paluwagan journey, it can greatly affect the continuity of the payments. The group may face problems as how they will continue the payments now that they have to make up with loop hole of the withdrawn member’s account. This also opens a lot of fears and questions for the members.

Early members may feel lazy to pay. The thing is in paluwagan, the earliest you got your payment, the lesser value it may appear to you. This is because after you got your money, you now have to pay until the last member will be paid. Others choose to be last but this offers a risk too for unintentional factors such as a group member sudden resignation or financial member might pop up.

You are just saving. As said in the early part of this blog post, the money you pay i Paluwagan does not earn interest. Meaning, what you pay is what you get unlike when you open a savings account (which I don’t recommend for the interest earned is pretty low) or a mutual fund that may earn interest in just a couple of months investing.

May cause ruined relationships. Just like the accountability partner reason, joining paluwagan is like risking your friendship/relationship especially if the other has high sensitivity when there’s money involved. I heard stories of friendship who ended for one didn’t know how to pay on time. Also there are even scarier stories of the tasked collector that stole the fund of the paluwagan.

Final Notes from SavingsPinay

In the end, what you do with your money is a personal thing. There may be different factors that will influence your decision but at the end of the day it will always be you. As a refreshment remember to always evaluate the group you deal with before joining a paluwagan. Asses too your finances if you can really pay for the whole paluwagan duration.

As this is a Filipino thing, it may be hard to eradicate the tradition of paluwagan but there’s nothing wrong in being open with alternative such as mutual fund investments, UITF and even a small buy and sell business. Again, it’s your money. You are the only one with responsibility on how to use it.

Izza of SavingsPinay helps Filipinos bridge the financial literacy gap one content at a time by providing insights and tips on budgeting, saving, investing, side hustle and growing your net worth. Aside from this blog she also writes at www.izzaglinofull.com, a beauty and lifestyle blog for frugal Pinays and manages, www.izzagevents.com, a wedding and event business since 2011. For inquiries, topic suggestions or future collaborations email her atizza@savingspinay.ph